Noble shareholders will receive Chevron shares as part of this all-stock transaction. Chevron shares traded in the red on Monday, falling as much as 2.7% in the morning.
The US shale oil and gas industry has been hit hard during the pandemic. Demand dropped as people stopped traveling and commuting. And energy prices have plummeted, as an untimely global oil stalemate has temporarily increased supply as people used less oil.
To make matters worse, many energy producers had taken on debt to finance their operations before the current recession hit.
American shale operators have been plagued by low energy prices. Last month, a Deloitte study indicated that about 30% of shale players would be technically insolvent at the price of oil of $ 35 a barrel. On Monday morning, US oil futures hovered around $ 40 a barrel, after rebounding after falling below zero in April.
Although Noble is severely in debt, its assets – including its proven but undeveloped reserves – are an attractive and relatively cheap buy for Chevron (. )
The Noble purchase makes perfect sense for Chevron as the two companies complement each other, said Andrew Dittmar, senior mergers and acquisitions analyst at Enverus, an information provider for the energy industry.
Deals like this – all-equity deals between companies that pair naturally – could be a consolidation plan in the energy sector after the pandemic, Dittmar added.
“Given the natural adjustment of assets, Noble was considered likely to be on the Chevron radar from the time that Chevron chose to withdraw from any bidding competition with Occidental on Anadarko,” said Dittmar.
Occidental Petroleum outbid Chevron for Anadarko in May. Occidental was subsequently sued by activist investor Carl Icahn, who said the company overpaid for Anadarko.
Once the companies are combined, their merger will generate some $ 300 million in annual cost synergies. The acquisition is expected to close in the last quarter of the year.
– Matt Egan contributed to this story.